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The new property tax for foreign investors in Queensland and considerations for lenders

Any financier who is considering providing finance to assist a foreign person to acquire residential property in Queensland.

THINGS YOU NEED TO KNOW

Foreign persons will be required to pay a stamp duty surcharge of 3% for acquisitions of residential property in Queensland.

WHAT YOU NEED TO DO

The proposed changes are yet to become law, however if you are under an obligation to provide finance to assist a foreign person to acquire residential property in Queensland, we recommend that you seek specialist advice.

On 9 June 2016, Treasurer Curtis Pitt announced that the Queensland Government will introduce a new 3% surcharge on stamp duty for foreign investors who purchase residential property in Queensland. He expects the fee to raise $15 million in its first year and $25 million a year in future years.

Mr Pitt told the Queensland Media Club that the new surcharge "will ensure foreign purchasers of residential property, who benefit from government services and infrastructure, make a contribution to their delivery - as local buyers do."

Duty on the purchase of residential property in Queensland is currently charged on a sliding scale up to 5.75%. With the surcharge, this will rise to 8.75% for foreign buyers. This is on top of the recently introduced:

fee imposed on foreign buyers applying for approval from the Foreign Investment Review Board, which is approximately another 1% of the purchase price, and

a 10% non-final withholding tax on payments made to foreign sellers of Australian real property with a value over $2,000,000.

This move by the Queensland government follows the introduction of a similar 3% duty surcharge on foreign buyers of residential property in Victoria last year. Interestingly, the Victorian government announced only a few weeks ago that they would increase their surcharge to 7% from 1 July 2016. New South Wales has also recently announced a similar 4% duty surcharge.

The language in the Duties and Other Legislation Amendment Bill 2016 (Qld) (Queensland bill) (under which any unpaid stamp duty surcharge is a first ranking charge against the property) is reminiscent of the language in the Land Tax Act 2010 (Qld) (LT Act), under which unpaid land tax in Queensland is also given the status of a first ranking charge against the land ahead of all other security interests.

However, the difference between the and the provisions of the Income Tax Assessment Act 1997 (Cth) (ITA Act) (under which a capital gains withholding tax is imposed on purchases of Australian residential property from foreign persons) is that both the LT Act and the ITA Act make provision for a clearance certificate to be obtained, giving financiers and their customers confidence as to whether there is a liability. No such clearance certificate regime is proposed under the Queensland Bill.

The surcharge is likely to be introduced for all Queensland residential land acquisition contracts by foreign buyers signed on or after 1 October 2016. The obvious message for financiers who are bound to provide, or who are considering providing finance to assist foreign buyers to acquire residential property in Queensland, is to ensure that any affected customer has paid the new 3% stamp duty surcharge prior to settlement.

Financiers who are likely to be affected by this change should seek specialist advice, including whether their customer are ‘foreign’ for the purposes of the new legislation to ensure their security position is not subordinated by a first ranking charge in favour of the Commissioner of State Revenue.

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